2008 losses could reach $8b as fuel strikes again

IATA is now indicating industry-wide global losses for the year could reach up to $8 billion for 2008, largely driven by heavy losses in the fourth quarter on fuel hedging contracts. IATA has been forecasting a likely $5 billion loss for the industry in 2008. While it has not formally changed its forecast, its latest Airlines Financial Health Monitor says heavier than expected 4Q losses suggest this forecast looks low and points to an overall global net loss of up to $8 billion for 2008.

One of the key factors behind the likelihood of larger global losses is heavy losses stemming from fuel hedging contracts in the fourth quarter, as a host of airlines locked into hedging contracts came unstuck in the volatile fuel market after the rapid fall in oil price during the second half of last year. AirAsia is the latest carrier to reveal a hit - it took a one-off Rm426 million ($115 million) hit in the fourth quarter to unwind its hedging positions (read our recent blog on this here) – adding to a string of carriers to report hedging losses. Click here for our recent article on hedging losses.